[WATCH] Will higher tax ceiling be Budget’s surprise?

Final touches to Budget 2012 may contain a widening of income tax bands, in a bid for government to counter a subdued domestic demand and leave more money in consumers' hands.

Although Finance Minister Tonio Fenech has been scant on detail, it is a decision that is expected to change the political game-play for this year's budget.

On one hand, Lawrence Gonzi's government may be getting ready for elections earlier than usual, using the tax bands as a sweetener for a budget that is mainly aimed at cutting the country's deficit down to Eurozone rules.

On the other, the government will argue that leaving more money in people's hands can encourage consumption and domestic demand after energy inflation left a dent in people's purchasing power.

Labour has previously criticised Gonzi for using tax cuts as an electoral plank in 2008 but never being able to deliver due to its deficit-cutting programme.

But up until last Saturday, Labour's spokesperson for finance and the economy Karmenu Vella said tax cuts would now be irresponsible and "simply an electoral gimmick."

The government's electoral pledge was to lower the top income tax rate to 25 per cent from 35 per cent for those earning €60,000 and less.

In an interview on Reporter, finance minister Tonio Fenech said the 2008 financial crisis made fulfilling this tax cut impossible. "Instead we introduced other forms of tax cuts, such the micro-invest scheme for businesses to invest more in return for tax cuts. Or tax cuts for women returning to gainful employment."

But Fenech said that tax cuts in this budget would be "irresponsible".